For more than a decade, executive teams in U.S. firms have become increasingly partisan. Between 2008 and 2020, researchers found that the partisanship of executive teams increased by 7.7 percentage points.

When examining why executive teams in U.S. firms have become increasingly partisan, the study’s authors found two reasons.

First, executives have increased their tendency to match with like-minded partisans. During their research, the study’s authors found that 61% of the increase in partisanship was caused by executives’ increased tendency to match with other executives who share the same political values. The remaining 39% was caused by executives becoming more politically uniform.

To understand the effects of the rise in partisanship on firms, the study’s authors began by looking at how this trend affects executives themselves. They found that executives whose political views are misaligned with the majority of executives in their firm have a 3.2-percentage-point higher probability of leaving the firm than executives whose political views are aligned with the majority of their firm’s executives.

With this information, the study’s authors began asking the question of “whether the departure of politically misaligned executives is good or bad for shareholders.” Taking a look at firms’ stock returns after the departures of politically aligned and misaligned executives, they found that shareholders lost $238 million after the departure of executives with misaligned political views. The study’s authors conclude that the rise in partisanship within executive teams in U.S. firms has a negative effect on not only the executives themselves but also the firm’s shareholders as well.

Source: “The Political Polarization of Corporate America,” by Vyacheslav Fos, Elisabeth Kempf and Margarita Tsoutsoura; Centre for Economic Policy Research, June 2022.

Related

Feature

Check a Firm’s Health in Its Annual Report

Stock Strategies

Corporate Reinvention and the Creation (or Destruction) of Value

Stock Strategies

The Proxy Edge: Exercising Your Shareholder Rights